Tuesday, August 7, 2018

African Swine Fever's Great Leap to China

China reported its first outbreak of African Swine Fever last week despite over a decade of preparations to block the virus from entering the country. The virus appears to have made a vast intercontinental leap to Eastern China that parallels China's "Belt and Road," raising the possibility that China's new trade links may also create new vectors for the spread of disease.

On August 3 the Ministry of Agriculture and Rural Affairs announced China's first outbreak of African Swine Fever (ASF) on a farm on the outskirts of Shenyang in northeastern China. Officials said 47 pigs had died from suspected ASF infection on a 383-head pig farm in Shenyang's Shenbei New District. Officials announced they had culled over 900 pigs in the area to prevent spread of the disease. Yesterday--4 days after the outbreak--communist party news media declared that the ASF outbreak has been brought under control.

The virus is endemic in most African countries. It jumped to the Caucasus region in 2007 and has been spreading across western Russia, the Baltics, Belarus, Poland and the Czech Republic during recent years. Recent outbreaks had been reported thousands of miles from china--in Romania during June, and in Russia during July.
skinning a wild pig at a May 2018 training session on African Swine Fever prevention

Chinese officials have been on guard against the spread of ASF for many years. Two years ago, the Ministry of Agriculture's 2016-2020 plan for the swine industry warned of continuing risk of African Swine Fever spreading to China. In April 2017, the Ministry of Agriculture ordered provinces to be on high alert to prevent ASF from spreading to China. In October 2017 China's Ministry of Agriculture published an African Swine Fever emergency program notice instructing provinces to make preparations for dealing with an ASF outbreak.

Heilongjiang Province has been a focus of concern. Heilongjiang has a long Russian border and probably has China's largest population of wild pigs--a common vector of transmission. In May 2018, a technical training was held to teach officials along China's northeastern border how to detect ASF in wild pigs, investigate and control outbreaks. The training was held in Da Hing'an Ling district in the northern reaches of Heilongjiang Province and was attended by 50 workers from Inner Mongolia, Heilongjiang and Jilin Province.

Chinese authorities have focused ASF-prevention efforts on the southeastern corner of Heilongjiang Province that borders the tip of far eastern Russia that dips down to the port of Vladivostock:


It is puzzling why southeastern Heilongjiang is a focus of concern since Russian outbreaks--including the most recent on in Belgorod--were in western Russia thousands of miles from China. The closest cases were in Irkutsk in March 2017, still 1000 km west of China.

This week, after the Shenyang outbreak was discovered, investigators were sent back to a conservation district in Da Hing'an Ling in northern Heilongjiang (where the May 2018 training session was held) and to Gan'nan County in western Heilongjiang to check for signs of ASF.

This appears to be a farm to protect native breeds of pigs in a conservation area of Da Hing'an Ling, Heilongjiang Province, where an ASF monitoring investigation was conducted August 5-6, 2018.
While ASF may be under control in the area surrounding the farm near Shenyang, it seems probable that the virus is present elsewhere in China. The first announced occurrence of ASF in Liaoning Province was far from any international border and over 900 km from southeastern Heilongjiang where authorities have been watching for the disease. It seems probable ASF had been spreading for some time in China before it reached Liaoning Province.

How did ASF jump from eastern Europe to eastern China? A logical risk factor is China's "One Belt One Road" program which has been aggressively targeting new trade links with regions where ASF is present: Africa, eastern Europe, and Russia. These new trade routes also have the potential to create dangerous new vectors for the spread of disease. While China does not allow imports of livestock or meat from these countries, the virus or ticks that spread it could potentially tag along on clothing, commodities, equipment, or other materials transported from infected regions.

On August 3, China's customs administration issued an African Swine Fever alert ordering inspectors to inspect luggage, postal items, ships, airplanes and vehicles arriving from foreign regions infected with ASF and turn away or destroy any pigs, wild pigs or their products they find. But the alert was issued after the outbreak in China occurred--too late to prevent the virus from entering the country.

Chinese farms in Russia are another possible risk factor. The southeastern Mudanjiang district in Heilongjiang is also one of the most active regions in developing farming businesses across the border in Russia. With growing traffic of people, equipment, and commodities crossing the border in recent years there have been greater opportunities for viruses to spread.

Risk analysis is a good idea, but diseases tend to spread in unexpected ways. No one ever conclusively figured out how the PED virus apparently jumped from eastern China to the United States about 5 years ago. The results were devastating in the U.S. which has a lot of experience dealing with animal disease.

It is also inconvenient that China in the midst of a big project to shift swine production to northeastern provinces--which doesn't look like such a good idea now that the region is threatened with a highly contagious disease.

Sunday, August 5, 2018

Support Livestock Farms in Trade War: China Expert

Preventing impacts on meat production is the main concern regarding soybeans in the trade war with the United States, the former president of China Agriculture University said last week.

In an article issued by Farmers Daily, a Ministry of Agriculture-controlled paper, former Ag University President (and ag economist) Ke Bingsheng said China faces a choice of stopping soybean imports from the U.S. or continuing to import them after assessing a 25% tariff. If China were to stop buying U.S. soybeans, it would be left with a 10-to-20-million-ton deficit since other countries could not increase exports enough to replace U.S. soybeans. If China continues importing U.S. soybeans the imports will be more expensive due to the 25% tax, Professor Ke said. The tax would affect consumer prices by raising the cost of soybean meal which would, in turn, raise the price of meat, according to Prof. Ke. He said Chinese experts estimate the effect on China's CPI would be 0.1% and no more than 0.4%.

Prof. Ke said the main concern is how more expensive soybeans would affect meat production. Raising the price of soybean meal could reduce the inclination of farmers to raise pigs and chickens, causing the price of meat to rise. The article warned that a small change in production can cause large changes in price, citing an 8% decrease in pork production during 2006/07 that coincided with a 60% increase in pork price.

Prof. Ke suggested that authorities consider ways to support livestock producers in a way that offsets any rise in production cost due to higher soybean meal prices. This is needed to prevent a dip in production that could have reverberations for months or years through the "cobweb" hog cycle.

The article began with standard rhetoric about "no winners in a trade war" and asserted that U.S. tariffs are politically-motivated, not economically motivated and China had to respond in kind. It reviewed the rapid growth in soybean trade, the importance of China as importer and the U.S., Brazil, and Argentina as the main exporters.

Sunday, July 29, 2018

Audit of China Grain Reserve to Uncover Hidden Dangers

How much grain does China's government have in its bloated reserves? Have local officials duped top leaders by inflating the numbers? Is the grain too rotten to be eaten? It will take more than a year for Chinese officials to get the answers through a massive audit of the sprawling grain reserve system. If it turns out that China doesn't have as much grain as officials thought, there is no promise that the audit results will be revealed to common Chinese citizens or to market analysts.

On July 13 China's State Council ordered a complete check-up of national and local grain reserves to find out the actual quantity, quality, and location of the grain. The program will be conducted in a series of steps that will take 15 months to complete by the end of September 2019.

On July 26, Xinhua News Service said the grain inventory check-up is urgently needed following the accumulation of grain from price support programs in recent years, “difficulties of managing the reserves,” and "hidden dangers" to food security. Xinhua formulate plans to dispose of excess stockpiles, formulate targeted policies and assign responsibilities to central and local governments, warehouses, and grain enterprises.

Some of the specific concerns can be inferred from the State Council document:
  • Statistics on grain purchases and reserves reported to higher-level authorities have been inflated
  • Warehouses receive subsidy payments and loans for holding grain that they don't actually have
  • Grain was not deducted from reported holdings after being sold or transferred to another province
  • An unknown proportion of grain held in inventory is inedible or even toxic--i.e., is a food security hazard
The main part of the program will be an audit of "policy-type" grain reserves held by various companies and a check of commercial grain inventories held by grain reserve companies (presumably branches of Sinograin, the government's grain reserve corporation). "Policy-type grain" includes:
  • central reserves
  • minimum price purchase reserves 
  • national temporary reserves
  • national one-time reserve purchases 
  • local reserves
Inspection teams will be formed to check inventories of all warehouses controlled by Sinograin, other enterprises, and warehouses hired to hold reserves. The audit will check physical quantities held against what is on the books.

The grain reserve audit will begin with a pilot conducted in 2 pilot counties each in 10 provinces from October to January. Most of the national audit work will be conducted in March-May 2019 through filing of reports and onsite inspections, with final results reported to the State Council by September 2019.

Previous grain reserve checks were conducted in 2001 and 2009, Xinhua said. The results of previous grain reserve investigations have never been revealed to the public. The results of this one will be reported to the State Council, but there is no mention of reporting the results to the Chinese public to assure them that their food supply is secure.

Monday, July 23, 2018

China's Poor Quality Wheat Must be Purchased

Local officials have been ordered to buy up large volumes of Chinese substandard wheat harvested this summer. A July 20 document on wheat procurement work in "disaster areas" said large volumes of wheat produced this year do not meet national standards due to lodging, germination, sprouting, and mold caused by heavy winds and rain at harvest time in regions of the middle and lower Yangtze River valley and the Huang-Huai region.

The document issued by the National Development and Reform Commission and eight other government organizations and companies orders local governments, grain depots, mills, and banks to buy up the substandard wheat and finance purchases to ensure that farmers are able to sell their off-grade wheat. Insurance companies are ordered to pay out contractually obligated indemnities to farmers and inspections of insurance companies are to be conducted. Agricultural Development Bank managers are ordered to simplify and speed up approvals for loans. Officials are warned to have a sense of responsibility and urgency and to prioritize wheat-buying as a political task in order to preserve social stability. The document says farmers are very concerned.

The National Bureau of Statistics report on summer grain output said winter wheat production totaled 128.35 million metric tons, down 2.2% from last year. The Statistics Bureau report did not mention quality problems and described the harvest as "relatively good." But the large amounts of substandard wheat will reduce the actual supply of milling-quality wheat more than statistics indicate.

State-owned companies are urged to go into the market to buy up wheat and downstream processors can be given awards to stock up on wheat inventories. (State-owned companies Sinograin, COFCO, China Supply and Marketing Group, and Sinochem are among the issuers of the document.) This year's revised program for minimum price purchases of wheat and rice urges provincial authorities to organize "temporary reserve" purchases of off-grade wheat when large volumes do not meet the standard of grade 3 or higher for national minimum price procurement.

Anhui Province launched a purchase program for off-grade wheat last week. Hubei Province launched a program June 8. A district in Hubei is paying 1600-1900 yuan per metric ton for wheat with excessive mold. One district of Anhui says 50 million yuan of insurance indemnities have been paid out to 340,000 farmers whose wheat was damaged by frost, storms, and pests.

According to the document, funds for programs to buy up substandard wheat can come from the provincial "grain risk fund." If additional funds are needed, they should be included in the provincial budget.

At the same time, the document cautions the same officials to ensure food safety by preventing moldy wheat from contaminating the food supply with mycotoxins.

Wheat buyers are warned not to limit purchases of qualified wheat, nor to downgrade wheat, withhold payment, to issue IOUs, or exaggerate prices paid. They are warned not to steal subsidy funds and not to cheat farmers or charge them high interest rates. Wheat-buying officials are admonished to keep reserve wheat separate from wheat purchased at market prices and to prevent damp wheat, off-grade wheat, and foreign material from mixing with reserves.

Tuesday, July 17, 2018

Stop Illegal GMO Corn by Legalizing It, China Scientists Say

Illegal planting and sale of genetically modified corn seeds is a persisting problem in China. The best way to deal with the problem is to legalize GMOs, Chinese scientists say.

An article in Science and Technology Daily this week notes that China's top corn seed company was recently implicated in the illegal sale of 50 kg. of genetically modified corn seed, an incident the company attributes to "internal management problems." The reporter observes that such incidents of illegal sale and planting of GMO corn seeds have appeared regularly in recent years.

Industry experts told Science and Technology Daily that the main reason for the persistence of illegal GMO corn-planting is that farmers "love" the seeds. Farmers growing conventional corn have suffered serious losses from pests, and scientists say mold from pest-damaged corn contaminates other corn when the ears are mixed together, resulting in further losses from mycotoxins. China has varieties of corn genetically altered to resist pests using genes from bacteria which can reduce pest losses, raise yields 10-30%, and increase income by about 40 yuan per mu (about $40 per acre).

According to Science and Technology Daily, farmers have found no safety problems from planting GMO corn. Some merchants will gladly violate regulations to supply GMO seeds as long as farmers are eager to get the seeds. Huang Dafang, chief scientist of a biotechnology institute, says seed companies faced with vicious competition and tiny profits are strongly tempted to deal illegally in GMO seeds.

Wang Dayuan, former head of China's National Rice Research Institute, assures readers that GMO corn is evaluated by supervisory organizations and is just as safe as conventional corn varieties. He cites a report issued by ISAAA (International Service for the Acquisition of Agri-biotech Applications) which estimates that 189.8 million hectares of land in 24 countries have been planted in GMO crops and no food safety or environmental safety harm has been verified in 21 years of planting GMO crops worldwide. China has planted GMO cotton and imported GMO soybeans for more than 20 years without problems either.

Huang Dafang says legalizing the planting of GMO corn in China would be welcomed by most farmers, seed companies, and processors. Making persistent illegal behavior legal would help China become internationally competitive, reduce use of chemical pesticides, and spur a new round of innovation in Chinese agricultural science, Huang told Science and Technology Daily.

Huang claims that Chinese scientists have intellectual property rights to insect-resistant and herbicide-tolerant corn varieties they have developed.

Perhaps it's a coincidence, but Economic Observer reveals that Denghai--the seed company caught growing illegal seed--was engaged in a cooperative GMO research project with Dabeinong (aka DBN) whose executive pled guilty to stealing seeds from test plots in the United States several years ago. Investigations in the U.S. revealed that DBN employees had carried the seeds back to China disguised as boxes of popcorn.

The advocacy of GMO legalization appears to be part of a concerted campaign. The day after the Denghai company admitted its seed incident last week, another academician from China's Academy of Sciences also advocated GMO legalization at a seed industry meeting, saying, "If China waits until the entire general public accepts GMOs to commercialize them, that day will never come."

Saturday, July 14, 2018

China Livestock Upgrade Accelerates, MARA says

Great progress in transforming the country's livestock and poultry sector has been declared by China's Ministry of Agriculture and Rural Affairs (MARA). Markets have stabilized, outmoded farms have been closed, and pollution problems are being addressed.

First, MARA lauds a rebound in hog and egg markets. Hog prices went through a precipitous decline from February to May this year. The rebound in prices since May has approached the breakeven level, and some efficient farms are making good profits now. Officials say they prevented a more serious disequilibrium by issuing guidance to farmers to reduce herds to tide them over the depressed market. The egg sub-sector has also recovered from a steep drop in the market last year. The average egg price of 8.29 yuan per kg is up 42 percent from a year ago. Meat poultry, beef and sheep production is stable with good profits, MARA says.

Second, MARA reports that traditional modes of livestock and poultry production are being transformed to achieve greater efficiency. Each locality is upgrading its breeding and propagation system to overhaul the breeding stock, and genomic technology is spreading. Benchmarking helps farmers improve efficiency: the days needed to raise a pig to a market weight of 100kg decreased from 170 days to 163 days since 2012. China now has 4,573 model livestock and poultry farms that demonstrate efficient, environmentally-friendly, safe management techniques. Farms that failed inspections were shut down.

MARA says the project to designate districts where livestock and poultry farms are banned is now complete. The program eliminated 34 million pigs through farm closures, relieving environmental pressure in the southern watershed region. Livestock farms have been moved to regions that are less environmentally vulnerable.

MARA has issued technical materials to guide officials in calculating land parcels' carrying capacity for livestock waste. The central government budgeted 5 billion yuan (about $770 million) to support 200 livestock and poultry manure utilization counties that demonstrate how to collect animal waste, treat it, and utilize it as biogas and organic fertilizer for fruit, vegetable, and tea farming. By the end of the year, MARA thinks more than 64% of livestock and poultry waste will be utilized.

Friday, July 13, 2018

China Can Replace U.S. Soybeans, Propaganda Says

China can replace U.S. soybeans with imports from other sources, Chinese propaganda says. Drawing from a stable of reliable "experts" and executives of state-owned businesses, State media are spinning China's retaliatory 25-percent tariff on U.S. soybeans as another opportunity to change the world with country's "One Belt, One Road" initiative.

A China Central Television broadcast, "Geometry of Soybean Trade Impact," emphasized that China can shift its sources of soybeans.

Li Xiaowei of China National Grain and Oils Information Center says the 25-percent tax will make U.S. soybeans more costly, but the tax will bring about "deep changes" in China's pattern of imports.

Cheng Guoqiang, Tongji University professor and former State Council agricultural economist, described the 25-percent tariff as making U.S. soybeans "uncompetitive" and will send a "radical signal to the world market" that will attract new soybean suppliers. He claims China's imports from the U.S. will be shifted to the Black Sea region, causing U.S. farmers to miss out on the "dividends" from China's growing consumption.

[In fact, the China tax is making Brazilian soybeans uncompetitive as Chinese buyers bid up their price. Driving the U.S. price down has given buyers outside of China a huge bargain on U.S. soybeans.]

Similarly, Li Guoxiang of the Chinese Academy of Social Sciences claims that the tax will invite other countries to increase soybean production.

In the Peoples Daily's “Our Country is Fully Capable of Filling the Deficit From Reduced Imports of American Soybeans” Li Xiaowei says that Chinese companies have not made any soybean purchases from the United States in three weeks and have canceled orders for 615,000 metric tons. He says U.S. farmers will incur big losses and speculates that China can fill the deficit by growing more soybeans domestically, importing more soybeans and meal from Brazil and from "one belt one road" countries in Central Asia, and researching feed formulations to reduce reliance on soybean meal.

A spokesman for Sinograin, China's grain and oils reserve company, says his company has not bought U.S. soybeans since April and has switched to purchases from Brazil, Argentina, and Uruguay. He thinks China will buy even more soybeans from South America in the future. He says Sinograin has developed an integrated reserve and processing system with 6.5-mmt of crushing capacity. He says reserves are adequate to prevent disruption of the market.

[Note that Sinograin switches to imports from South America every year in April when the southern hemisphere crop comes in. Not mentioned here is speculation in other news reports that Sinograin's imports to refill reserves will be either exempt from the tax on U.S. soybeans or will be compensated by the government.]

Yu Yunbo, head of COFCO, China's largest state-owned agribusiness, says that China imported the equivalent of 6.25 mmt of soybean oil and 26 mmt of soybean meal from the United States last year. He insists that the products of U.S. soybeans can easily be substituted with other products. He says China can import more soybeans from other countries, import rapeseed and sunflower seed, import meal from soybeans-rapeseed-sunflower seed, and import more meat to replace U.S. soybeans. He emphasizes that COFCO's "global vision" in meeting China's growing demand is embodied in the company's 2014 acquisition of Nidera and Noble Agri that have assets in Brazil, Argentina, the Black Sea region and Indonesia's palm oil region.

The commentators don't mention the cost to China of diversifying the country's imports. China already pays the highest soybean prices in the world and they are going even higher. Driving the price of U.S. soybeans down to a $1-plus per bushel discount to Brazilian beans gives the rest of the world a bargain and lures more buyers of U.S. beans. The real test for Chinese importers will come in the next few months as South American supplies are depleted.

The commentators put far too much confidence in the capacity of alternative suppliers to ramp up soybean production. In Brazil, it took decades and huge subsidies to colonize its empty interior, develop cultivars that could grow in the tropics, subsidize trucking-in of inputs and trucking-out of crops, and to build logistics infrastructure. Chinese soybean importers had highly-touted plans to grow soybeans in Argentina and Brazil a decade ago that crashed and burned. Chinese farmers have been growing soybeans in Russia for a decade, and Chinese imports from that source have not yet reached 1 million metric tons.

Wednesday, July 11, 2018

China Ideas on Expanding Imports in "New Era"

China's State Council has issued a document guiding Government ministries to push ahead on strategies to promote imports and free trade in the country's "new era" proclaimed by Xi Jinping.

The July 2 "Ideas on expanding imports to promote balanced development of foreign trade" (unofficial translation) directed various government departments to carry out practical implementation of the strategic "mutually beneficial opening of the economy" that has been proclaimed by China's leadership.

The strategy has multiple objectives:
  • promote imports to better satisfy the rising demands of consumers,
  • speed up institutional innovation,
  • push ahead on upgrades of the economic structure,
  • raise international competitiveness,
  • further expand imports while keeping exports stable
  • promote balanced development of foreign trade,
  • preserve free trade
The document is a practical implementation of directives issued at last year's 19th communist party congress to keep consumers happy by giving them access to imported products, reform outdated economic institutions, produce higher-quality internationally-competitive products, and to burnish China's credentials as a leader of global "free" trade (as defined by China). The document does not make reference to trade tensions with the United States. It does emphasize "One Belt One Road" countries and establishment of a web of free trade agreements as targets for efforts in opening the economy.

The document calls for measures to facilitate imports of products and services that improve peoples' lives and raise living standards. This represents a break from the Soviet-era dogma of suppressing consumption and focusing on imports of raw materials and equipment to promote industrial development that has shaped China's trade strategy since the 1950s. The new strategy encourages imports of items for daily life, medicine and health-related products, and support of the elderly. It calls for reduced taxes on some imported commodities, reducing layers of intermediaries in distribution, cleaning up irrational charges, and improving the duty-free shop system.

The document also focuses on imports of "transformational" technology and equipment that can support China's ambitions to become a high-tech superpower. It calls for complementary foreign investment and imports in key strategic industries. ...and it calls for protection of intellectual property rights (again).

Agricultural and resource-type products are also targeted for "appropriate increases in imports," including agricultural products that are in tight supply domestically, inputs that can upgrade agricultural competitiveness, and ag machinery. The document advocates fast-tracking inspection and quarantine protocols with related countries and pushing inspection and quarantine entry arrangements for important food and agricultural products. It calls for increased international cooperation in agriculture and forestry.

"Belt and Road" countries are targeted for "optimizing" the international trade layout. Several commitments to give concessionary trade access, including zero tariffs for most commodities, to least-developed countries and "south-south" foreign aid receive emphasis.

Strategies for promoting trade include China's international import expo, free trade agreements, free trade demonstration zones and industrial parks, e-commerce development and oversight, trade facilitation, elimination of "irrational" fees, simplifying the import process, and improvement of the technical barrier system.

Finally, the State Council document orders each government department and locality to give a high level of attention to work based on these ideas in the new situation of expanding imports.

Wednesday, July 4, 2018

China Grain/Soy Imports Surged as Trade Tensions Rose

China's grain imports rose to over 3 million metric tons in May 2018 as trade tensions with the U.S. heated up. China is set to assess 25-percent retaliatory tariffs on imports of grains and soybeans from the United States as of July 6.

Grain and Oils News article reported robust China grain imports during April and May. The combined volume of rice, wheat, corn, sorghum, and barley imports reached 3.1 mmt in May, up from 2.9 mmt in April and about 2 mmt during January and March. Imports were 1.5 mmt during February which included the Chinese New Year. The cumulative imports of rice, wheat, corn, sorghum, and barley totaled 11.5 mmt for January-May, up from 10.9 mmt during the same months a year earlier despite the rise in trade tensions.

Barley imports have been consistently strong. China recorded 640,000 mt of sorghum imports during April when China announced a 179-percent antidumping duty (it was terminated May 18). Intrepid buyers imported 470,000 mt of sorghum in May. Corn (760,000 mt), wheat (630,000 mt), and rice (480,000 mt) imports all surged during May. China's imports of soybeans also surged to 9.7 mmt during May 2018.

According to Grain and Oils News, the average unit value of imported corn during May was 1,337 yuan/mt, 463 yuan less than the average domestic corn price of 1800 yuan/mt. A year ago, domestic and imported corn prices were nearly equal. Worries about domestic wheat quality due to wet weather in May and June increased premiums for high quality wheat and may boost demand for imports.

Wednesday, June 13, 2018

Q&A on China's Corn Subsidy

China's corn farmers can expect to continue receiving their subsidy payments in the future as subsidies tied to acreage planted in specific crops become one of China's main subsidy strategies, according to a recent online article posted on numerous agricultural news sites in China. It is clearly tied to the amount of corn grown, unlike the first round of grain subsidies that began in 2004.

The article provided answers to 10 questions to help farmers understand the corn subsidy payment.

1. Will this be the last year for the corn subsidy?
A: This is the third year of the subsidy's 3-year trial, but it is likely to continue in future years. Indeed, it may become a common subsidy measure that covers all crops (it already covers corn, soybeans, and rice).

2. When is the land area for the corn producer subsidy verified?
A: Each year by June 30. The subsidy funds are distributed by September 30.

3. How much is the subsidy?
A: The amount varies by province and year. During 2016, Heilongjiang had a province-wide corn producer subsidy of 153.92 yuan/mu; in 2017 it was 133.46 yuan; and it is rumored to be cut to 100 yuan or less in 2018. Jilin, Inner Mongolia, Liaoning Provinces have subsidies that vary by county.

4. What regions are covered by the corn producer subsidy?
A: Counties and municipal districts where corn is grown in the three northeastern provinces (Jilin, Liaoning, Heilongjiang) and Inner Mongolia.

5. Are the corn producer subsidy and the cultivated land fertility subsidy the same?
A: No. Corn producer subsidy recipients are producers with land actually planted in corn. Land fertility subsidy recipients in principle are those engaged in growing grain crops, including rural people, state farms, forestry districts, and state farm employees. For contracted cropland that is transferred or subleased, in principle the subsidy is given to the contracting household.

6. Who gets the corn producer subsidy?
A: Producers who legally grow corn on cultivated land, including local farmers, family farms, farmer cooperatives, and outsiders who legally rent land. For land transferred, subsidy funds must be given to actual corn growers.

7. Is the subsidy paid for land planted in corn for silage or corn as a vegetable (sweet corn)?
A: Not corn for silage, but sweet corn is covered by the subsidy this time.

8. What is the basis for determining a farmer's subsidy payment?
A: The area of cultivated land planted in corn during the current year.

9. If a contract to transfer land has been signed but does not specify who gets the subsidy, what happens?
A: It is suggested that the two parties negotiate a settlement according to law.

10. If I have transferred my land to another party this year, does my land area have to be verified again next year if I take my land back?
A: The area planted in corn must be verified each year.

Monday, June 11, 2018

China's Hope: Unmanned Farms

China hopes its farms will eventually be run by machines who do the work and the thinking. The vision of unmanned Chinese farms is an astounding great leap from its present highly labor-intensive fragmented farming model.

At a "fully automated agriculture" pilot kicked off last week in Jiangsu Province's Xinghua municipality, a central government official remarked that agricultural field work is rapidly becoming digitized, automated, and linked to the Internet as fusion sensors, precision navigation, artificial intelligence, cloud computing and big data increase in popularity. The pilot kick-off featured unmanned tractors, rice transplanters, pesticide applicators, and fertilization equipment. Many use sensors, controllers, and a Chinese satellite for navigation.

The official said tractors on autopilot, intelligent drip irrigation, variable application of fertilizer and other new intelligent technologies are already in use by advanced countries like the United States and Israel. These technologies can help China cope with its aging work force, low productivity, polluting farming methods, and low value added in farming, the official remarked.

The 7-year pilot for automated agriculture is sponsored by an automobile industry technology alliance and the Xinghua local government. The pilot aims to build a foundation for a new Chinese agricultural production model by demonstrating advanced farm operation models and technologies, step by step bringing digitization, artificial intelligence, and online connections to cultivation, planting, field management, harvest, storage, and transportation. They hope agriculture will become a wealthy industry and that farming will become a new high-tech profession.

According to the president of Jiangsu University, unmanned farming equipment has been adapted to Chinese conditions and will bring earth-shaking changes to agriculture, both in China and in the world.

A commercial attaché from Ukraine's embassy attending the event said he hoped China would set up agricultural machinery factories in his country. An official from a Russian company said digital technology is the wave of the future, and she expressed interest in cooperation with Chinese companies.

China Chooses Feed Imports to Compete with Soymeal

China has waived inspection and quarantine requirements on a list of obscure animal feed ingredients, apparently as a strategy to reduce reliance on soybean meal as an ingredient in the country's feed industry. The move illustrates China's practice of manipulating such rules to manage trade.

China's Administration of Customs 2018 Bulletin No. 51 announced that inspection and quarantine certificates will no longer be required for a list of 71 items as of June 1, 2018. The list includes 18 items that are by-products of agricultural processing used as animal feed--all but a few of the items under the broad Harmonized System (HS) category 23. The items include rapeseed meal, peanut meal, cottonseed meal, palm and coconut meal, fish meal, sugar beet and bean pulp, the residual from sugar cane processing, wine dregs, and feed additives. Other products on the list are obscure types of fats, oils and fibers, also residual material from processing industries.

What is notable are the three categories under HS 23 NOT included: soybean meal, distillers dried grains, and wheat bran. Imports of these excluded items will still be subject to rigorous inspection and quarantine inspections at the border.

While the Customs notice claims that the items were selected on the basis of risk evaluation, the choice of items appears to be based on strategic considerations of protecting domestic industries and fostering alternatives to soybean meal. Imported soybean meal, distillers grains and wheat bran imports would compete with products of important domestic processing industries in China.

A commentary on the announcement interprets the Customs waivers as a strategic measure to diversify sources of high protein meal to reduce reliance on soybean meal--the dominant source of protein meal used in China's animal feed. The article quotes an unnamed industry analyst who notes that imports of alternative protein meals are currently very small and the analyst speculates that easing the way for imports of rapeseed, peanut, cottonseed, palm, and sugar-derived meals could diversify China's sources of high protein feeds.

The analyst also observes that distillers dried grains--the most popular alternative to soybean meal--was not included in the "liberalization." Last year China imposed antidumping duties of distillers dried grains. Its exclusion from the customs announcement appears to be another indication that Chinese authorities want to keep imported DDGS out of the market.

The commentary did not notice that wheat bran (HS 230230) was also one of the few items in the HS 23 category omitted from the customs announcement. The preservation of quarantine certificate requirements for wheat bran is likely intended to protect China's flour mills which derive significant supplementary revenue from selling bran (the by-product of milling wheat) for use in animal feed. Wheat bran prices have already been under downward pressure in China.

The customs announcement also appears to dovetail with China's strategy of promoting imports from "One Belt One Road" countries. Palm kernel and sugar cane residual products are imported mainly from Southeast Asia. China began importing peanut meal from Sudan and fish meal from Mauritania in 2016. Imports of sunflower seed meal from Kazakhstan began last year.

If challenged on the exclusion of soybean meal, DDGS, and wheat bran, China's Customs Administration will likely produce some sort of "risk analysis" that claims these three items pose a threat of introducing weeds or contaminants to China. It seems more likely that opening trade with new partners in Africa, Central and South Asia poses a risk of introducing foreign material, invasive weeds and pathogens, but customs authorities are welcoming this trade and likely rushing through approvals in the interest of promoting trade with "belt and road" countries.

This liberalization echoes another attempt to engineer trade using the same group of products two decades ago. During the 1990s China slashed tariffs on imports of items in HS 23 and waived the value added tax on imports of these items. That move was intended to fill deficits of protein in animal feeds without directly competing with grain products produced by China's farmers. It also represented a goodwill gesture of trade liberalization as China negotiated its accession to the WTO two decades ago.

The immediate result of the 1990s tariff cuts was a flood of soybean meal imports during a downturn in grain and pork markets that led to huge losses for Chinese soybean crushers. The VAT was reinstated for soybean meal to protect the crushers, and China has never been a major importer of soybean meal since then. But other items in HS 23 remained exempt.

Imports of DDGS from the United States was another unforeseen outcome of the 1990s liberalization but it took a decade to develop. Distillers dried grains were a fairly obscure commodity during the 1990s. After the U.S. ramped up its ethanol industry during the first decade of the 21st century, China's feed mills discovered imported DDGS could be a useful and cost-effective feed ingredient. Imports didn't get going until 2009, but China's imports of DDGS spiked at over 7 million metric tons and $2 billion during 2015.

Monday, June 4, 2018

China Says Ag Imports from U.S. Are Now Good

Last month Chinese officialdom decreed that imports of agricultural products from the United States are now a good thing, a reversal of past anxiety about unfair U.S. prices and threats to China's food security. A new round of tariff cuts scheduled for July 2018 backs up the rhetoric.

A May 17 Economic Observer article by a Ministry of Agriculture and Rural Affairs official proclaimed that "moderate imports" are a necessary feature of China's new stage of openness. With growing population, changing consumer demand, limited natural resources, and pollution constraints, agricultural imports are a necessity, the author said. He further asserted that agricultural imports do not conflict with domestic agricultural development as long as imports are steady, controlled, spread out over time, and spread over different sectors.

New in this article is its blessing of agricultural imports from the United States. The Ag Ministry author acknowledges that the United States is the leading agricultural exporter because of its abundant resources, large farms, and production capacity--without the usual complaints about U.S. farm subsidies, ABCD companies, trade barriers and hegemony over markets. The author concludes that agricultural trade between the United States and China benefits both Chinese consumers and American farmers.

The article was posted in various forms on dozens of Chinese news sites--including a May 19 version on the official Chinese Government web site--indicating that the new "ag imports are good" story is being pushed by propaganda authorities. A version of the article in the official propaganda mouthpiece Peoples Daily refers to China's commitment to import more U.S. products made in bilateral consultations completed May 19, suggesting the new rhetoric is at least partly a product of those negotiations. The Peoples Daily version emphasized that imports give China's consumers more choice, proclaiming China's "huge middle class" as the world's biggest market.

The rhetoric about opening the agricultural economy and giving consumers greater choice has been gaining momentum over the past year. 

On May 31 Chinese officials announced a new set of tariff cuts for imports of consumer items that will take effect July 1, 2018. Among the products scheduled for cuts, the average tariff on a select group of fish and seafood products, mineral water, and processed foods will be reduced from an average of 15.2% to 6.9% in July. These are reductions in MFN tariffs that apply to all trading partners. The pro-import propaganda blast may have been meant to notify local officials of the new party line in advance of the new round of tariff cuts.

This is not the first move to cut taxes on imports. Authorities cut value added taxes on imported agricultural products from 13% to 11% last year and sliced the VAT again to 10% as of May 2018.

Tuesday, May 29, 2018

China's Vision for Ag Science Cooperation

China's vision for solving global problems through international collaboration in agricultural science under the "one belt-one road" initiative was laid out in an article in State media this week.

The head of China's Academy of Agricultural Sciences, Wu Kongming, sees great potential for food production in the abundant water and soil resources and high quality ecological environment of belt-road countries. He said “one belt-one road” agricultural cooperation can promote orderly regional flows of agricultural factors of production and deepen agricultural market integration. Exchange of experience in agricultural development and bringing into play the comparative advantages of each country can maximize the potential for agricultural development, advancing mutually beneficial opportunities for each country, Wu said.

According to the article, China's Ministry of Agriculture drew up a vision for banding together various government departments, research institutes, and agricultural enterprises to carry out global agricultural cooperation in 2014.

Chinese Academy of Agricultural Sciences (CAAS) International Cooperation Bureau Director Gong Xifeng explained that CAAS now has over 60 foreign agricultural technology projects. China’s seeds, veterinary drugs, machinery, and plant protection technology help “one belt-one road” countries raise production, increase income of farmers, and raise the competitiveness of agricultural products, he said. China’s plan for sharing ag technology features rice, specifically “green super rice” for which they say got aid from Gates Foundation.

The Chinese strategy includes setting up joint laboratories in various countries to take advantage of genetic resources through gene sequencing, developing new varieties, etc. Examples are a joint cotton lab in Uzbekistan and a survey of cotton resources in East Africa.

The Chinese Academy of Ag Sciences sends scholars abroad and are hosting hundreds of grad students and researchers to build goodwill abroad. Mr. Gong said CAAS now has 395 foreign students, of whom 70% are from belt-road countries.

Most Chinese projects abroad are conducted by commercial entities, and CAAS is developing offices and platforms to support companies by supplying them with info about the countries. China also has a plan to nurture a new generation of domestic personnel who can speak foreign languages and understand agricultural technology (a big bottleneck to efforts to go abroad to date) to work in Chinese companies and embassies abroad.

Minimum Price Program Tweaked

China announced a modest reform of its minimum price purchase program for wheat and rice that Farmers Daily described as a signal of marketized reform.

This year's implementation plan for the program sets stricter conditions for activating minimum price procurement of wheat and rice. Minimum price procurement can begin only when the market price has fallen below the minimum price announced by the government for 3 days in a row. When this happens, the province's branch of Sinograin applies to its headquarters, which in turn seeks approval from the State Administration of Grain and Commodity Reserves to begin minimum price procurement. Minimum price procurement must be suspended when the market price rises above the minimum for 3 days.

The document allows only grain of national grade 3 or higher to be purchased at minimum prices. When there are large volumes of grain below grade 3 due to a disaster or other reason, provincial authorities are urged to begin their own "temporary reserve" purchases of grain.

The minimum price procurement for wheat can start June 1 (about a week later than in previous years) and ends by September 30. Early indica rice minimum price procurement season is August 1 to September 30. Middle and late indica rice procurement can begin October 10 and finishes by January 31. Japonica rice procurement can begin November 1 and finishes by the end of February. The national program covers the same provinces as in past years: 6 wheat provinces, 5 early rice provinces, 8 middle and late indica rice provinces, and 4 northeastern japonica rice provinces. Other provinces can launch their own procurement at minimum prices at their discretion.

This year's program is more specific about the roles of various actors. Sinograin is commissioned as the main actor in procuring rice and wheat at minimum prices. This year's document specifically identifies four state-owned companies that can purchase grain on Sinograin's behalf: COFCO, Supply and Marketing Group, Sinochem, and China State Farm Group. Sinograin can appoint other entities to purchase grain if they meet requirements for capital, assets, credit, etc.

This year the Peoples Bank of China and the Banking and Insurance Regulatory Commission are added as issuers of the document. The Agricultural Development Bank is identified as supplier of credit for the program.

The document's preamble identifies its main purpose as protecting the profits of farmers. Other language suggests that the reforms are aimed at stopping abuses of the program by local depot operators. The document calls for ensuring that quantities purchased are "truthful." Orders issued at summer grain procurement meetings warn officials not to "round trip" grain by buying and selling the same grain multiple times and they were sternly ordered not to use reserve grain as a guarantee for any other loans. There were also admonitions to prevent poor quality grain from mixing with food grains to prevent food safety threats.

Officials at the national summer grain meeting convened on May 17 anticipated that the volume of grain purchased at minimum prices will be smaller this year and prices will better reflect quality premiums.

However, a report on progress of the wheat harvest says there are serious quality problems with this year's winter wheat crop. Heavy rains during the recent harvest has caused lodging, sprouting, and mold problems in many areas. Prices are said to be lower than at this time last year.

At meetings to organize summer grain procurement officials were admonished to give proper attention to grain procurement to protect the interests of farmers and to maintain social stability. Local meetings reported training dozens of officials; counted up scales, grain driers, and other equipment on-hand; and ensured adequate credit is available from Agricultural Development Banks to buy grain.

Friday, May 18, 2018

China Quits Sorghum Anti-Dumping Investigation

China's Ministry of Commerce announced today that its antidumping and anti-subsidy investigation of sorghum imported from the United States would be terminated because duties would not be in the public interest. Provisional duties of 179% imposed last month will be terminated and deposits collected will be returned.

The Ministry's "Announcement on termination of anti-dumping and anti-subsidy investigation of sorghum imported from United States" [关于终止对原产于美国的进口高粱反倾销反补贴调查的公告] released May 18, 2018 said the investigation found that duties would raise costs for consumers and impose even more pain on the beleaguered swine industry which is suffering severe losses due to a 30-percent decline in hog prices since the beginning of the year:
"In the process of the investigation, the investigating organizations received many reactions from downstream users who told the investigation that downstream livestock farming industry would experience higher costs. The anti-dumping and anti-subsidy measures would result in higher costs of living for the broad population of consumers and would not be in the public interest. The investigating organizations found that pork prices had recently been on a sustained declining trend, and many farmers are facing difficulties. In this situation, the anti-dumping and anti-subsidy measures are not in the public interest." [unofficial translation by dim sums blog]

Thursday, May 17, 2018

Corn Auctions Cost Billions

China is disgorging massive quantities of surplus corn from its reserves, but sales are costing the Chinese treasury billions of dollars.

Today China sold 1.4 million metric tons of corn from its "temporary reserve" at an average price of 1,401 yuan ($220.79) per metric ton. Most of that corn had been purchased during 2014 at support prices of 2220 yuan in Heilongjiang Province and 2260 yuan in Inner Mongolia and Liaoning Province. Thus, the sale recovered only about 62 percent of the price paid for the corn when in was purchased about 3 1/2 years ago. Additionally, authorities paid about 5% interest on loans used to buy the corn and about 86 yuan ($13.50) per ton per year to store the corn.

The total cost of corn auctioned can be estimated by applying these accounting calculations to auction results reported on www.grainmarket.com.cn.

Estimated financial losses from China's auctions of corn from "temporary reserve", 2017-18
Item May-Sept 2017 April-May 2018

Million metric tons
Grain sold at auction 48.8 25.7

Billion dollars
Revenue from auction sales 10.4 5.9
Purchase cost -17.2 -8.9
Cost of interest and storage -4.7 -3.4
Total cost of grain -21.9 -12.3
Assumes exchange rate of 6.35 RMB/US$; interest rate 5%; storage cost of 86 yuan/ton/year. Purchase cost based on temporary reserve prices.

The April-May auctions of corn have generated $5.9 billion (using an exchange rate of 6.35 yuan/dollar), but the original purchase cost of the corn was $8.9 billion. So auction sales, on average, recovered 64 percent of the original cost of the corn--not nearly enough to pay back the loans used to purchase the corn. Interest and storage cost for the corn added $3.4 billion, presumably paid for by subsidies from the Ministry of Finance. Thus, the corn cost $12.3 billion, but only $5.9 billion was generated from auction sales. The net cost to the Chinese government and/or banks of the corn sold is therefore $6.4 billion, or $249 per metric ton.

The 48.8 mmt auctioned during May-September 2017 (for which we could find auction results) generated $10.4 billion and cost $21.9 billion, a net cost of $11.5 billion for 48.8 mmt, or $236 per metric ton.

These costs do not include costs for unsold corn still held in inventories. 

Officials are eager to sell corn since interest and storage costs go up and grain deteriorates the longer the grain is held.

Sunday, May 13, 2018

China Adjusts "Go Global" Agriculture Program

China's foreign investment and cooperation in agriculture must recognize the "deep changes in the domestic and foreign environment," "seize opportunities" and "take the initiative" according to exhortations issued at a Ministry of Agriculture and Rural Affairs meeting of officials responsible for international cooperation held last week.

Officials were instructed to guide industries to shift investment to "belt and road" countries and the Indochina region of Southeast Asia. Other edicts were to:
  • establish a complete agricultural trade policy system, 
  • actively participate in negotiations on international rules for trade and investment. 
  • Speed up nurture of a set of major international grain traders and agricultural enterprise conglomerates, 
  • encourage enterprises to optimize their industry and market layout worldwide.
The meeting chaired by Minister Han Changfu carefully studied Xi Jinping's thoughts on "rural revitalization" and "one belt, one road" and propagated the themes of building an "open agricultural economy" and international competitiveness in agriculture. According to the Ministry, better coordination of investment and developing a complete policy system improving policy support for overseas investment and technical assistance to continually improve agriculture’s international competitiveness and global influence will "add luster to the modernization of agriculture and rural areas."

There is nothing really new in last week's meeting. All the components have been included in China's recent under-the-radar program to make the country's overseas agricultural investments more effective.

A November 2016 Ministry of Agriculture circular "Program for Construction of 'Two Zones' for External Agricultural Cooperation" laid out an experimental program for trying out various support and development strategies for foreign investors in agriculture to carry out instructions in the State Council's "No. 1 Documents" to improve international cooperation in agriculture with "one belt, one road" countries and foster big grain traders and agribusiness conglomerates. Participating companies can be both state-owned and private, and non-agricultural companies are also encouraged.

In a two-year pilot program the strategy will throw different ideas at the wall and see which one sticks. "Two zones" refers to foreign "demonstration zones" and "experimental zones." Demonstration zones include various types of technology and industry parks and free trade zones with an emphasis on multiple Chinese businesses working together to form industry clusters and/or chains of industry: seeds, machinery, farming, marketing, processing and sales. "Experimental zones" are zones in China that will experiment with various policies to provide support to overseas investors in agriculture, including information databases, subsidized loans, insurance, training of companies and personnel. Companies could get help raising funds in capital markets, loan guarantees, priority in attaining national-level "dragon head enterprise" status, help with inspection and quarantine procedures. The document called for state-trading enterprises to use their tariff rate quotas to import products of Chinese companies investing in agriculture abroad.

Last July, the first ten demonstration and experimental zones were announced, and the top 100 overseas agricultural investment companies were announced in February 2018. Lists are shown below.

The first 10 demonstration zones included five in Africa, two in central Asia, two in southeast Asia, and a fishing industry zone in Fiji. The Tanzanian zone happens to be in a gold-mining region. Each zone is to be managed by a relatively anonymous provincial company:
First set of Chinese foreign agriculture development zones, announced July 31, 2017
Zone name Company responsible
Tajikstan-China Agricultural Cooperation Demonstration Park Xinjiang Lihua Cotton Co.
Mozambique-China Agricultural Technology Demonstration Center Hubei Province Lianfeng Overseas Agriculture Development Ltd Co
Jiangsu-Shinyanga Agricultural and Industrial Modern Industrial Park (Tanzania) Jiangsu Haiqi Technology Engineering Ltd Co
Uganda-China Agricultural Cooperation Industry Park Sichuan Youhao Hengyuan Agriculture Development Ltd Co
Star of Asia Agricultural Industry Cooperation Zone (Kyrgyzstan) Henan Guiyou Shiye Group Ltd Co
Sudan-China Agricultural Cooperation Open Zone Shandong International Economic Technology Cooperation Co
Laos-China Modern Agricultural Technology Demonstration Park Shenzhen Huada Genetic Sci-tech Ltd Co
Cambodia-China Tropical Ecological Agricultural Cooperation Demonstraton Zone Hainan Dingyi Luzhou Ecological Agriculture Ltd Co
Fiji-China Fishery Industry Comprehensive Industry Park Shandong Lidao Ocean Technology Ltd Co
Zambia Agricultural Product Processing Cooperation Zone Qingdao Ruichang Sci-Tech Industry Ltd Co

Experimental zones include a mix of port cities, fishing industry centers, inland border crossings, a China-Singapore food trade zone, and a tropical agriculture institute, most managed by city or county governments.
China Open Agriculture Experimental Zones, announced July 31, 2017
Zone name Organizing Unit
Qionghai Open Agriculture Cooperation Experimental Zone Hainan Qionghai City Government
Tropical Agriculture Open Cooperation Experimental Zone China Institute for Tropical Agriculture 
Lianyungang Open Agriculture Cooperation Experimental Zone Jiangsu Lianyungang City Government
Jilin Zhongxin Food Zone Open Agriculture Cooperation Experimental Zone Jilin (China-Singapore) Food Zone Management Commission
Jeminay Open Agriculture Cooperation Experimental Zone Xinjiang AR, Jeminay County Government
Raoping Open Agriculture Cooperation Experimental Zone Guangdong Province, Raoping County Government
Weifang Open Agriculture Cooperation Experimental Zone Shandong Weifang City Government
Dongning Open Agriculture Cooperation Experimental Zone Heilongjiang Dongning City Government
Rongcheng Open Agriculture Cooperation Experimental Zone Shandong Rongcheng City Government
Binhai New District Open Agriculture Cooperation Experimental Zone Tianjin Binhai District Government

A partial list of the top 100 companies designated for foreign investment in agriculture includes the top state-owned grain-trader COFCO, the top agribusiness conglomerate Guangming, many companies from the system of state farms, state-owned chemical companies, feed, seed, agricultural machinery, rubber, and fishery companies.
Sample list of 31 of the top 100 Chinese companies for foreign investment in agriculture, February 2018
COFCO Group
Guangming Foods 
Hainan Natural Rubber Industry Group
New Hope Liuhe Corporation
Shandong Ruyi Sci-Tech Group
Sinochem International
Lovol Corp
ChemChina Agricultural Chemicals
China National Fisheries Corp
Dakang International Food and Agriculture
Guangdong Guangken Rubber Group
Inner Mongolia Yili Group
Guangdong Haid Group
Tongwei Corp
Shanghai Fisheries Group
Yunnan State Farms Rubber Investment
Rugao Shuang Ma Chemical 
Shandong Meijia Group
YTO Group 
China State Farms Group
Xinjiang Production and Construction Corps Engineering
Tianjin Food Group
Shandong Sinotex
Beijing Nutrichem 
Yuan Longping Agri-Tech
Jilin Province Jinda Foreign Agriculture Investment
China-Africa Agriculture Investment Co
Jiangsu Red Flag Seed Co
Beidahuang Rice Group International Rice (Beijing)
Chongqing Grain Group Haining Fudi Investment 
Pu'er City Conghe Rubber

Saturday, May 5, 2018

China Soybean Planting "Emergency" Declared

Two Chinese provinces issued orders to increase soybean planting this spring with promises of a big subsidy. It is unclear whether the "emergency" is a potential shrinkage of soybean imports from the United States or low soybean prices that threaten to derail China's multi-year effort to shift land from corn to soybeans.

Jilin Province issued a "circular on 2018 soybean planting task"《关于下达2018年全省大豆种植面积任务的通知》to township governments ordering local officials to expand soybean planting, and warning them that they must raise their "awareness and political standing" to decisively complete the task. Local officials were told to email their soybean plan to provincial officials by May 2. On April 28, Changchun municipality issued an "emergency notice on implementing the 2018 soybean planting task《关于迅速落实2018年大豆种植面积任务的紧急通知》which emphasized that "expanding soybean area is an important political task in agricultural production." Heilongjiang Province also issued an "emergency" circular to expand soybean planting this year.

The Jilin circular issued to Shuangliao District officials (see below) promises subsidies of 350 yuan per mu ($813 per hectare or nearly $344 per acre). A meeting convened by the vice mayor of Heihe City in Heilongjiang promised a 200-yuan/mu soybean producer subsidy and a 150-yuan subsidy for switching from corn to soybeans--the same as the 350-yuan subsidy /mu in Jilin. (Heihe's corn subsidy is 100 yuan/mu.)

Market prices for soybeans in Heilongjiang now range from 3.3 to 3.6 yuan/kg. With a yield of 140 kg/mu, the 350-yuan subsidy would add 70-to-75 percent to the 462-to-504 yuan/mu gross income per mu from growing soybeans. The subsidy is also roughly equal to the average rent for land in northeastern China.

"circular on 2018 soybean planting task" issued to
local governments in Jilin Province's Shuangliao municipality.
Academy of Social Sciences Agricultural Economist Li Guoxiang told NBD News that the provincial soybean-planting campaigns are a continuation of the 5-year "supply side structural adjustment" program to shift land from corn to alternative crops as well as an effort to reduce reliance on soybean imports.

The big subsidies could have been prompted by the late realization that market conditions have severely eroded the profitability of soybeans for Chinese farmers: domestic soybean prices are down and corn prices are up. The monthly Ministry of Agriculture commodity market report released April 18 revealed that soybean prices in Heilongjiang Province are down 9.2 percent from a year ago, while corn prices in the province are up 12-to-18 percent from a year ago. National Bureau of Statistics farm producer price indexes show a similar pattern of rising corn prices and falling soybean prices from 2017 to 2018. These price movements seem likely to prompt farmers to switch from soybeans to corn, thus bringing the "supply side structural adjustment" program to a screeching halt in its third year.
Changchun emergency notice says expanding
soybean planting is an important political task.
Meeting in Heihe City promised subsidies of 200 yuan and 150 yuan for growing soybeans.

Wednesday, May 2, 2018

Xinjiang Leads China Wheat Policy Reform

China's Xinjiang Autonomous Region says it will replace a support price for wheat with market-determined prices supplemented by a bigger direct payment to farmers, according to Grain and Oils News. A grain official said the policy adjustment is intended to address the province's surplus of low-quality wheat which has overwhelmed storage facilities.

Since 2004, Xinjiang has set a support price for wheat and given farmers subsidy of 0.3 yuan for each kilogram of wheat they sold to state-owned enterprises. Since 2009, the region has set an annual plan to purchase 1.5 mmt of wheat for a "temporary reserve." An official said that paying farmers based purely on the weight of grain sold encouraged them to produce maximum quantities without regard to quality. The policy was set to ensure that the region -- in China's northwest far removed from the main wheat-producing regions -- could meet its food needs with a small surplus. Instead, an official told Grain and Oils News, farmers produced a bloated surplus and there is no room in storage facilities. Farmers became overly reliant on selling to the government, and undermined the marketing system, officials explained.

This year Xinjiang will begin "supply side structural reform" for wheat. Officials say the wheat price for farmers will be set by the market, with prices rewarding farmers for high quality wheat demanded by the market. "Diverse players" will enter the market, and Xinjiang will no longer carry out the 1.5-mmt "temporary reserve" purchase plan.

The government will still have a significant role, however. An annual wheat production plan will be drawn up for each county. Pilot programs will promote selenium-enriched wheat, organic wheat, and strong gluten wheat and brands in various regions. Minimum and maximum inventory guidelines will be issued to warehouses and mills. Banks will be instructed to set aside funds to finance grain purchases by marketing enterprises, and interest rates will be subsidized.

Farmers will get more generous subsidies. The "cultivated land fertility protection" subsidy will be increased by 30 yuan per mu for winter wheat and 15 yuan for spring wheat to ensure that grain is profitable enough to attract farmers, Grain and Oils News said. Information about this subsidy is elusive. Funds are issued to counties which set the amount of the subsidy.

News items say farmers who grow wheat, corn for silage, alfalfa, field corn and unspecified specialty crops are eligible for the land fertility protection subsidy. (Cotton, sugar beet producers are not eligible--they have their own subsidies.) In one region, a calculation indicates the land fertility subsidy was 56 yuan/mu in 2017 and would therefore be 86 yuan/mu this year. In Wusu prefecture, a document specifies a subsidy of 100 yuan/mu for producers of wheat, corn for silage, alfalfa, and 18 yuan/mu for field corn, tomatoes for processing, sunflowers, and melons. The same subsidies were announced for Bayingol Meng Prefecture in January and for Yili Kazakh Prefecture in 2016.

In principle, the land fertility subsidy is intended to pay for measures to restore soil fertility, but no conditions for receiving the subsidies are specified.

A reform of wheat policy announced in Xinjiang may indicate China's new direction for food grain policy. The minimum procurement price policy for the core wheat regions of Hebei, Henan, Shandong, Jiangsu, Anhui, and Hubei has always been distinct from Xinjiang's wheat policy. A Ministry of Agriculture report on supply side structural reform for wheat issued in 2017 also blamed the price support program for prompting farmers to produce excess supplies of moderate-gluten wheat because it rewards them for test weight and low proportion of imperfect kernels but not for gluten or protein content. A Chinese Academy of Agricultural Sciences study of wheat samples from 2006 to 2015 found that the proportion of wheat meeting standards for strong gluten declined by half over the period and the proportion meeting weak-gluten standards remained minimal over the study period.

A similar strategy of direct payments in exchange for reducing support prices has been promised for rice this year, but no concrete measures have been announced.

Friday, April 27, 2018

Rice Province Plans to Reduce Crop

China's biggest rice-producing province has announced plans to cut production of the crop as the country copes with a rice glut. This is a reversal of now-forgotten policies aimed at expanding rice production in the same province six years ago.

According to State media, Hunan Province's communist party leadership announced an objective of reducing Hunan's area planted in rice by 3 million mu--equal to 200,000 hectares--during 2018. The province's "number one document" aims to reduce production of double-cropped rice and shift the land into high value specialty crops.

Hunan authorities plan to choose 10 counties for development of vegetable supply bases and another 10 counties will be targeted for development of specialty fruits and tea. A provincial communist party official explained that Hunan plans to focus on building up seven major agricultural industries by 2020: rapeseed, bamboo, grain processing, livestock and poultry, tea, vegetables, and cotton-flax-silk.

The move is part of a supply-side structural adjustment reform to reduce production of low-quality rice as China grapples with a rice surplus. The provincial communist party official said Hunan must shift its cropping structure away from uniform rice production toward a crop mix with higher quality crops based on regional comparative advantage to follow consumer demand, optimize returns for farmers, and build a Hunan provincial brand.

The cut in rice planting is a reversal of rhetoric sounded by Hunan officials ten years ago when they worried that rice producers were leaving their land idle, switching from two crops of rice per year to one, or converting the land to high-value crops. By 2011, officials had rolled out initiatives to revive production of two crops per year by giving out cash awards, ordering village leaders to prevent idling of land, and intervening to transfer idle land to farmers who would grow rice on it. In 2012, a subsidy program was launched to start specialized early rice seedling farms, rice-transplanting companies, and to mechanize transplanting.

According to Hunan statistics, area double-cropped in rice went up from 2010 to 2014, while single-cropped area fell. These were the years when officials were campaigning to revive production of the early rice crop, which is notorious for poor quality and is grown primarily to meet government production targets. The early crop posted the biggest increase in production: an increase of 92,000 hectares (suggesting numbers may have been padded) during 2010-14. The late rice crop rose 52,000 hectares, approximately equal to the 54,000-hectare decline in land where a single rice crop was planted per year.

Changes in Hunan province rice-planting
Double-cropped rice
Years
Early crop
Late crop
Single-crop rice
1000 hectares
2010-14
92
52
-54
2014-16
-32.5
-35.2
32.2
2016 area
1,421
1,459
1,206
Source: Hunan statistical yearbooks.

By 2014, it was evident that the campaign to boost early rice production had resulted in excess supplies of rice. The government was the main customer for the early rice crop, in particular. Officials reversed course, began discouraging early rice production, and cut the support price for the crop. From 2014 to 2016, the early rice crop fell by 32,500 hectares and the late crop fell by 35,200 hectares in Hunan, while planting of single-crop rice rose by 32,200 hectares.

Hunan still plants mostly double-cropped rice. In 2016, the province reported planting over 1.4 million hectares each in early and late rice, and 1.2 million hectares in single-season rice. (No data on 2017 rice production in the largest rice-producing province is available today -- two months after the completion of the rice marketing season -- despite China's enthusiasm for "big data" and "market information.")

Presumably, Hunan's 200,000-hectare reduction will reduce the 2.9-million-ha combined area planted in early and late rice crops. Thus, double-cropped area is presumably targeted for about 1.35 million hectares.

Why are Hunan officials announcing this objective of reducing double-cropped rice production in late April, about two months after farmers typically plant the early rice crop?

If they were wrong about early rice six years ago, why should we expect communist officials to correctly guide farmers this time on what they should plant?